Dealers jack up new car sales

Australian car makers and dealers have overstated the health of their industry by creating a ghost fleet of up to 16,000 vehicles that are counted as new car sales but in fact sit idle before being sold into the used car market.

An investigation by The Australian Financial Review, which comes as GM Holden announced a second wave of redundancies at its Adelaide plant this year, found importers and dealers pre-register new cars through holding companies and subsidiaries.

Those cars are counted in the official VFACTs data as being sold. But in ­reality a rising number end up advertised to the public as near-new or demonstration models, often with less than five kilometres on the speedo and at discounts of up to $15,000 on new prices.

The practice – widely recognised as a problem in European and UK markets but hushed up among local players – has hammered used-car prices and artificially inflated data collated by the Federal Chamber of Automotive Industries (FCAI).

New-car sales are seen as a barometer for consumer and business confidence. Senior industry insiders are concerned “tactical registration" – so called because of its use by dealers and importers to meet sales and volume targets – is warping the figures.

“It’s a numbers game," an east coast broker and former head of a leading dealership told The Australian Financial Review. “Manufacturers and importers pre-register to meet their production forecasts and collect on bonuses from head office. Dealers pre-register so it looks like they’re selling stock, meaning they can cash in on volume bonuses from the manufacturers.

Another east coast dealer said: “I know of a Nissan dealer who has to sell 70 Navara STRs. He knows if he sells his 70 cars, he gets back $3500 as a manufacturer bonus for every car. And I can guarantee if he doesn’t sell them, he’ll register them as ‘demos’, put the $240,000 cheque in his pocket and stick them out the back."

A search of online car classified site carsales.com showed 16,691 latest model cars listed in the “near-new or demo" category, of which 6199 had not travelled more than 50 km– making the notion they had been used as demonstration vehicles questionable. Dealers will explain the low mileage with stories such as that the car is an unwanted prize a winner wants to sell.

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Of the 2010 and 2011 models, 1122 had not been driven further than 100 km and many had clocked up less than 5 km but were still selling as “used cars".

The implication is that at least some of these cars have been sitting in manufacturer or dealer yards for up to three years, waiting for a buyer from the open market, but on paper they are recorded as having been sold.

Unlike in the UK and Europe, the FCAI’s VFACTS release is the only source of data on new vehicle sales. Figures for October are expected to be released this week. The FCAI denies there is any issue with the data, implying the pre-registration figures have to come out in the wash because dealers and manufacturers cannot afford to have large numbers of cars on their books for long periods.

“FCAI members developed the VFACTS system after extensive analysis of vehicle sales information systems in place around the world," FCAI chief executive Tony Weber said.

“The result is a robust system that carefully tracks each vehicle, identified by the VIN [vehicle identification number] and allocates that to a ­particular transaction. That VIN can never be used again as a record of retail activity within VFACTS."

But the FCAI would not comment on whether manufacturer and dealer pre-registrations were monitored, saying only that cars registered by a dealer as “demonstrator" models were covered in the “small fleet" category.

Australian industry participants are reluctant to speak about the issue on the record, but don’t deny the practice occurs. Some say it could account for up to 15 per cent of new car sales.

Nissan Motor Company Australia managing director Bill Peffer admits the new car market here is “without doubt the most competitive in the world". He would not be drawn on the issue of pre-registration.

Mazda Australia managing director Doug Dickson said recently the industry expected to reach record sales for 2012, with more than 1.1 million cars being sold – “significantly above" pre-financial crisis levels.

One Victorian broker said there was an unwritten rule about getting the car industry past that 1 million vehicles-a-year mark, which was partly why the practice of tactical registrations was being denied so vehemently by manufacturers and dealers.

“It’s linked to market perceptions about the health of the industry and the extent of the car market’s impact on the broader economy," he said. “So even if it’s only 10 per cent that are not actually being sold into the open market, it becomes an issue for annual sales figures".

In Queensland, insiders are even more sceptical about the industry. “Take away all the sales after the floods, and the new car market is looking pretty horrible," one dealer said. “Any dealer you speak to, at any auction, if you say ‘gee, new cars are flying’ they say, ‘well, we don’t know where’."

Ford spokesman Neil McDonald said the company did not run an extensive demonstrator program because while it may generate sales in the short term, in the longer term it devalues the brand and reduces residual values for customers who pay full price.

GM Holden said it did not have bonus schemes for dealers. Executive director of sales and marketing Phil Brook said artificially inflating volume to manipulate sales results by pre-registering cars then selling them used was not condoned by Holden.

“While we do have a normal demo program, which is audited and subject to vehicles being registered and owned by the dealer for a defined period, we do not seek to grow volume through this channel, which we believe can distort the true market and adversely affect dealer profitability," he said.

Toyota said it was unable to discuss details about its bonus structure because it was commercially sensitive, but said dealers registered vehicles to their business as demonstrator models to be used by customers to test drive. Like the others, Mitsubishi said its pre-registration practice was to support activities such as press and customer evaluation vehicles, loan cars and staff work and salary packaged vehicles.